As much as I love to see oil going down from its current level, the technical analysis generated from the daily chart isn’t pointing it downwards. This meant more pain at the pumps in the future for us which paying more than the highest we’ve ever paid price of RM 2.70. The subsidized price was RM 2.70 back then but Brent was trading around $125 per barrel back then.

I guess merely a $65 per barrel oil would already see us paying RM2.70 challenging the historical high for all consumers in Malaysia. It is worrying the fact that consumer price index would rise at such a rapid rate when crude prices rise significantly. A backup plan to cushion a rapid rise in oil price is not yet in place which might end up creating a major shock later.

Moreover, oil is a commodity and commodity prices would rally within a huge cycle as production of the physical commodity tends to lag for a bit before it corrects itself meeting the right demand. Demand spikes signaled through reported GDP growth rates by major economies like China, US or the European Union would play a major role pushing oil prices higher this year.

The phenomenon of oil rising past $80 a barrel might have a low probability but the probability of oil dropping to $25 wasn’t there as well just 3 years ago!

Technical Analysis

Going back to technical analysis for Brent Crude, the Brent price is currently consolidating along $55 and somewhat formed a clear resistance at $57. We think that this is forming an ascending triangle where it soon might break the resistance of $57 and possible rallying to $60 before it takes a break again.

Coupling that with a low MACD nearing the upper midpoint of zero, it proves that it still has room to go higher towards the positive side. The consolidating Moving Averages are currently holding the prices tight at $56 creating a support and with proper strength exerted, it would climb higher soon.

Fundamental Analysis

Fundamentally, the market is in a bullish environment this year and the feel-good factor is there to stay. Grow is likely to come back when major economies like US starts pushing growth plans where this is also the reason why oil spiked earlier after Donald Trump came into office.

The global feel-good factor on the economy hasn’t been factored in yet since China is still registering lower GDP growth rates. But as soon as growth rates stabilizes for several quarters, we should see commodity markets start picking up for a second rally.

Conclusion

We can’t do much really unless you can long oil futures and I think derivatives such as warrants issued by investment banks could include Brent as an underlying for us to trade or hedge in the future.

In the meantime, stocks like SapuraKencana seems to be the primary response in KLCI when oil prices move. This meant that the only way for us to benefit from an oil price rise is buying SKPETRO. But this is fairly in accurate since SKPETRO isn’t an upstream oil and gas company. It relies on the spending done by major oil companies like Petronas to derive its revenue and earnings.

I believe that the risk of oil price going up is more dangerous than ever judging from the current state of the Malaysian economy…

Finally, a complete analysis from Maybank Kim Eng where it covers the Asian markets that they are operating at. Markets include China/HK, India, Indonesia, Malaysia, Philippines, Singapore, Thailand & Vietnam.

Note: Still do not like the recommendation on Gamuda which could leverage on our construction sector. The stock isn’t moving with these contracts and the timing of revenue and earnings create merely moderate earnings which do not portray growth in the business itself.

We feel that Gamuda is so popular in the markets a couple of years ago where many positives had already been factored in. The upcoming housing projects by Gamuda could be the only surprise to earnings but lackluster response from property buyers might backfire their plans too.